PureCycle Technologies, Inc 10-Q for FY2024 Q2
PureCycle Technologies, Inc. (PCT)
About this 10-Q
PureCycle Technologies, Inc filed this 10-Q on August 8, 2024, covering the quarter ended June 30, 2024 (FY2024 Q2).
Headline figures
Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $48.21M
- compared with a net loss of $55.37M a year earlier
- Diluted EPS
- -$0.29
- compared with -$0.34 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 5, 2024, there were approximately
1
PureCycle Technologies, Inc.
QUARTERLY REPORT on FORM 10-Q
TABLE OF CONTENTS
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PART I - Financial Information |
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Item 1. Financial Statements |
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Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023 |
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6 |
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7 |
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Notes to the Interim Condensed Consolidated Financial Statements |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
36 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
48 |
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48 |
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PART II - Other Information |
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49 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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49 |
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49 |
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50 |
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51 |
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53 |
2
PureCycle Technologies, Inc.
PART I - FINANCIAL INFORMATION
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements about the financial condition, results of operations, earnings outlook and prospects of PureCycle Technologies, Inc. (“PCT”). Forward-looking statements generally relate to future events or PCT’s future financial or operating performance and may refer to projections and forecasts. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions (or the negative versions of such words or expressions), but the absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements are based on the current expectations of the management of PCT and are inherently subject to uncertainties and changes in circumstances and their potential effects and speak only as of the date of this Quarterly Report on Form 10-Q. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section of PCT’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report on Form 10-K”) entitled “Risk Factors,” those discussed and identified in other public filings made with the U.S. Securities and Exchange Commission (the “SEC”) by PCT and the following:
3
PureCycle Technologies, Inc.
PART I - FINANCIAL INFORMATION — CONTINUED
PCT undertakes no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
Should one or more of these risks or uncertainties materialize or should any of the assumptions made prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events.
4
PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS |
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(Unaudited) |
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(in thousands) |
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June 30, 2024 |
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December 31, 2023 |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Debt securities available for sale |
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Restricted cash – current |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Restricted cash – non-current |
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Prepaid expenses and other non-current assets |
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Operating lease right-of-use assets |
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Property, plant and equipment, net |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Accrued interest |
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Current portion of long-term debt |
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Current portion of related party bonds payable |
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Total current liabilities |
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NON-CURRENT LIABILITIES |
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Deferred revenue |
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Long-term debt, less current portion |
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Related party bonds payable |
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Related party note payable |
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Warrant liability |
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Operating lease right-of-use liabilities |
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Other non-current liabilities |
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TOTAL LIABILITIES |
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$ |
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$ |
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— |
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— |
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STOCKHOLDERS' EQUITY |
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Common shares - $ |
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Preferred shares - $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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Accumulated deficit |
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( |
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( |
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TOTAL STOCKHOLDERS' EQUITY |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
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$ |
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$ |
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The accompanying notes are an integral part of these financial statements.
5
PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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(in thousands except per share data) |
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Costs and expenses |
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Operating costs |
$ |
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$ |
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$ |
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$ |
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Research and development |
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Selling, general and administrative |
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Total operating costs and expenses |
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Interest expense |
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Interest income |
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( |
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( |
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( |
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( |
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Change in fair value of warrants |
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( |
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Loss on debt extinguishment |
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Other expense |
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Total other expense |
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Loss before income taxes |
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( |
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$ |
( |
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$ |
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Provision for income taxes |
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Net Loss |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Loss per share |
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Basic and diluted |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average common shares |
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Basic and diluted |
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Other comprehensive income |
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Cumulative translation adjustment |
$ |
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$ |
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$ |
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$ |
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Unrealized gain on debt securities available for sale |
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Total comprehensive loss |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these financial statements.
6
PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
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For The Three And Six Months Ended June 30, 2024 |
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Common stock |
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(in thousands) |
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Shares |
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Amount |
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Additional paid-in capital |
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Accumulated other comprehensive (loss) income |
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Accumulated deficit |
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Total stockholders' equity |
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Balance, December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Options exercised |
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— |
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— |
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— |
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Share repurchase |
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( |
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— |
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( |
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— |
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— |
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( |
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Equity-based compensation |
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— |
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— |
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Unrealized gain on available for sale debt securities |
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— |
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— |
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— |
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— |
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Cumulative translation adjustment |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance, March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Share repurchase |
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( |
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— |
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( |
) |
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— |
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— |
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( |
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Equity-based compensation |
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— |
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— |
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— |
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Cumulative translation adjustment |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance, June 30, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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For The Three And Six Months Ended June 30, 2023 |
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Common stock |
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(in thousands) |
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Shares |
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Amount |
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Additional paid-in capital |
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Accumulated other comprehensive (loss) income |
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Accumulated deficit |
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Total stockholders' equity |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Share repurchase |
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( |
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— |
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( |
) |
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— |
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— |
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( |
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Equity-based compensation |
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— |
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— |
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— |
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Unrealized gain on available for sale debt securities |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance, March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Share repurchase |
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( |
) |
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— |
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( |
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— |
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— |
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( |
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Forfeiture of restricted stock |
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( |
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— |
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— |
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— |
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— |
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— |
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Equity-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance, June 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these financial statements.
7
PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Six Months Ended June 30, |
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(in thousands) |
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2024 |
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2023 |
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Cash flows from operating activities |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities |
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Equity-based compensation |
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Change in fair value of warrants |
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Depreciation expense |
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Amortization of debt issuance costs and debt discounts |
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Accretion of discount on debt securities |
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( |
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( |
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Operating lease amortization expense |
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Loss on extinguishment of debt |
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Impairment of operating right-of-use asset |
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Changes in operating assets and liabilities |
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Prepaid expenses and other current assets |
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( |
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( |
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Inventory |
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( |
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( |
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Prepaid expenses and other non-current assets |
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( |
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( |
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Accounts payable |
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Accrued expenses |
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( |
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Accrued interest |
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( |
) |
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Other non-current liabilities |
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Operating right-of-use liabilities |
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( |
) |
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( |
) |
Net cash used in operating activities |
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$ |
( |
) |
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$ |
( |
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Cash flows from investing activities |
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Purchase of property, plant & equipment |
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( |
) |
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( |
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Purchase of debt securities, available for sale |
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( |
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Sale and maturity of debt securities, available for sale |
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Net cash provided by (used in) investing activities |
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$ |
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$ |
( |
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Cash flows from financing activities |
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Payment to purchase revenue bonds |
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( |
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Proceeds from issuance of revenue bonds to related parties |
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Proceeds from other borrowings |
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Proceeds from equipment lease financing |
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Payments on equipment financing |
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( |
) |
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Debt issuance costs |
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( |
) |
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( |
) |
Payments to repurchase shares |
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( |
) |
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( |
) |
Payments on related party revenue bonds |
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( |
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Other payments for financing activities |
|
|
( |
) |
|
|
( |
) |
Proceeds from related party note payable |
|
|
|
|
|
|
||
Related party note payable issuance costs |
|
|
|
|
|
( |
) |
|
Net cash (used in) provided by financing activities |
|
$ |
( |
) |
|
$ |
|
|
Net decrease in cash and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
||
Non-cash operating activities |
|
|
|
|
|
|
||
Interest paid during the period, net of capitalized interest |
|
|
|
|
|
|
||
Non-cash investing activities |
|
|
|
|
|
|
||
Additions to property, plant, and equipment in accrued expenses |
|
|
|
|
|
|
||
Additions to property, plant, and equipment in accounts payable |
|
|
|
|
|
|
||
Non-cash financing activities |
|
|
|
|
|
|
||
Carrying value of shareholder loan exchanged for revenue bonds payable to related parties |
|
|
|
|
|
|
||
Initial fair value of warrant liability issued to satisfy shareholder loan prepayment penalty |
|
|
|
|
|
|
||
PIK interest on related party note payable |
|
|
|
|
|
|
||
Reconciliation of cash, cash equivalents reported in the consolidated balance sheet |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash and cash equivalents - current |
|
|
|
|
|
|
||
Restricted cash and cash equivalents - non-current |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted cash |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these financial statements.
8
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION
Formation and Organization
PureCycle Technologies, Inc. (“PCT” or “Company”) is a Florida-based corporation focused on commercializing a patented purification recycling technology (the “Technology”), originally developed by The Procter & Gamble Company (“P&G”), for restoring waste polypropylene into resin, called ultra-pure recycled (“UPR”) resin, which has nearly identical properties and applicability for reuse as virgin polypropylene. PCT has a global license for the Technology from P&G. PCT’s goal is to create an important new segment of the global polypropylene market that will assist multinational entities in meeting their sustainability goals, providing consumers with polypropylene-based products that are sustainable, and reducing overall polypropylene waste in the world’s landfills and oceans.
Business Combination
On March 17, 2021, PureCycle consummated the previously announced business combination (“Business Combination”) by and among Roth CH Acquisition I Co., a Delaware corporation (“ROCH”), Roth CH Acquisition I Co. Parent Corp., a Delaware corporation and wholly owned direct subsidiary of ROCH (“ParentCo”), Roth CH Merger Sub LLC, a Delaware limited liability company and wholly owned direct subsidiary of Parent Co, Roth CH Merger Sub Corp., a Delaware corporation and wholly owned direct subsidiary of ParentCo and PureCycle Technologies LLC (“PCT LLC” or “Legacy PCT”) pursuant to the Agreement and Plan of Merger dated as of November 16, 2020, as amended from time to time (the “Merger Agreement”).
Upon the completion of the Business Combination and the other transactions contemplated by the Merger Agreement (the “Transactions”, and such completion, the “Closing”), ROCH changed its name to PureCycle Technologies Holdings Corp. and became a wholly owned direct subsidiary of ParentCo, PCT LLC became a wholly owned direct subsidiary of PureCycle Technologies Holdings Corp. and a wholly owned indirect subsidiary of ParentCo, and ParentCo changed its name to PureCycle Technologies, Inc. The Company’s common stock, units and warrants are now listed on the Nasdaq Capital Market (“NASDAQ”) under the symbols “PCT,” “PCTTU” and “PCTTW,” respectively.
Legacy PCT unitholders were to be issued up to
The Legacy PCT unitholders will be entitled to
Unless the context otherwise requires, “Registrant,” “PureCycle,” “Company,” “PCT,” “we,” “us,” and “our” refer to PureCycle Technologies, Inc., and its subsidiaries at and after the Closing and give effect to the Closing. “Legacy PCT,” “ROCH” and “ParentCo” refer to PureCycle Technologies LLC, ROCH and ParentCo, respectively, prior to the Closing.
9
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Liquidity and Going Concern
The accompanying consolidated financial statements have been prepared assuming that PCT will continue as a going concern; however, the conditions described below raise substantial doubt about PCT’s ability to do so, which management believes has been alleviated through its plans to mitigate these conditions and obtain additional unrestricted liquidity.
The Company has sustained recurring losses and negative cash flows from operations since its inception. As
reflected in the accompanying consolidated financial statements, the Company has begun limited commercial
operations but does not have any significant sources of revenue.
|
|
As of |
|
|||||
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Debt securities available for sale |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Restricted cash (current and non-current) |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Working capital |
|
$ |
( |
) |
|
$ |
|
|
Accumulated deficit |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
|
|
For the six months ended |
|
|||||
|
|
June 30, 2024 |
|
|
June 30, 2023 |
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
As of June 30, 2024, PCT had $
PCT sold an immaterial amount of resin through the first six months of 2024 but has not yet reached meaningful production volumes and on-spec product. PCT has experienced intermittent mechanical challenges during the commissioning process including, but not limited to, limits in the rates at which certain contaminants can currently be removed from the purification process, as well as challenges with continuous operations of the pelletizing system for finished product. Recently, PCT has been focused on the recovery and removal of polyethylene and other solids (“co-product 2” or “CP2”), which impacts the ability to run higher volumes and produce consistent, high quality UPR resin. PCT believes it has identified multiple potential solutions that are expected to improve the ability to recover and remove CP2, as well as increase operational reliability. While these mechanical issues are not uncommon for first-of-its kind manufacturing facilities, the downtime needed to correct these issues is delaying the Ironton Facility from reaching consistent sustainable production rates. In addition to pursuing solutions for CP2 removal, the Company is also evaluating processes that blend its resin with either post-industrial recycled material or virgin polypropylene, which is expected to improve product consistency and enhance the product delivery to customers.
As of June 30, 2024, and through the twelve months from the date of filing, PCT anticipates additional capital investment in the Ironton Facility of approximately $
10
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the consolidated financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.
PCT believes that its current level of unrestricted liquidity is not sufficient to fund operations, fund outstanding commitments, and further its future growth plans. The conditions described above raise substantial doubt regarding PCT’s ability to continue as a going concern for a period of at least one year from the date of issuance of the consolidated financial statements included in this Quarterly Report on Form 10-Q.
In an effort to alleviate these conditions, PCT is currently performing certain operational enhancements that are expected to correct the production issues with the Ironton Facility. Further, on March 5, 2024, PCT LLC purchased
PCT’s future capital requirements will depend on many factors, including the funding mechanism and construction schedule of the Augusta Facility and other anticipated facilities outside the United States, build-out of multiple Feed PreP facilities, funding needs to support other business opportunities, funding for general corporate purposes, and other challenges or unforeseen circumstances. As a low-revenue operating company, PCT continually reviews its cash outlays, pace of hiring, professional services and other spend, and capital commitments to proactively manage those needs in tandem with its cash balance. For future growth and investment, PCT expects to seek additional debt or equity financing from outside sources, which it may not be able to raise on terms favorable to PCT, or at all. If PCT is unable to raise additional debt or sell additional equity when desired, or if PCT is unable to manage its cash outflows, PCT’s business, financial condition, and results of operations would be adversely affected. In addition, any financing arrangement may have potentially adverse effects on PCT and/or its stockholders. Debt financing (if available and undertaken) will increase expenses, must be repaid regardless of operating results and may involve restrictions limiting PCT’s operating flexibility. If PCT consummates an equity financing to raise
11
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
additional funds, the percentage ownership of its existing stockholders will be reduced, and the new equity securities may have rights, preferences or privileges senior to those of the current holders of PCT’s common stock.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated interim financial statements include the accounts of the Company. The condensed consolidated interim financial statements are presented in U.S. Dollars. Certain information in footnote disclosures normally included in annual financial statements was condensed or omitted for the interim periods presented in accordance with the rules and regulations of the SEC and accounting principles generally accepted in the United States of America (“U.S. GAAP”). Intercompany balances and transactions were eliminated upon consolidation. The results of operations for the six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2024. The accompanying condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented.
The unaudited condensed consolidated financial statements should be read in conjunction with the information contained in the Company's 2023 Annual Report on Form 10-K for the year ended December 31, 2023. Interim results are not necessarily indicative of the results that may be expected for a full year.
Reclassifications
Certain amounts in prior periods have been reclassified to conform with the report classifications of the three and six months ended June 30, 2024 and 2023. Specifically, the Company reclassified certain expenses between Operating costs, Research and development, and Selling, general, and administrative to more accurately reflect the activities of the business. Total operating costs and expenses did not change for prior years.
Immaterial Corrections Related to Prior Periods
We have identified an immaterial correction to certain 2023 quarters related to depreciation expense associated with the Ironton Facility assets (Machinery and equipment) placed in service during the period presented herein. We evaluated the effect of this correction on the interim condensed consolidated financial statements for the three and six months ended June 30, 2024 and 2023 in accordance with the guidance in ASC 250, Accounting Changes and Error Corrections, ASC 250-10-S99- 1, Assessing Materiality, and ASC 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. We have concluded that the 2023 prior periods are not materially misstated. Accordingly, we have reflected the 2023 prior period impacts and associated revisions for these periods presented herein.
The revision increased property, plant and equipment, net and decreased depreciation expense by $
Restricted Cash
Cash pledged as collateral for future capital purchases and leased properties is deemed restricted and included within restricted cash. Restricted cash that is expected to be spent or released from restriction within twelve months is classified as current on the consolidated balance sheet. Restricted cash that is expected to be spent or released from restriction after twelve months is classified as noncurrent on the consolidated balance sheet.
12
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Inventory
Production inventories are valued at the lower of cost or net realizable value and include raw materials, work-in-process, and finished goods inventory. The Company’s inventories are valued under the average cost method. As the Company has not generated material sales and is in the early stages of operations, net realizable value is being estimated based on anticipated selling prices, and the Company has not yet begun applying full absorption costing.
The Company records spare parts for plant maintenance as a current asset and expenses them when utilized. The Company has recorded $
Recently Issued Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2023-09—Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures. The amendments in this update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information and includes certain other amendments to improve the effectiveness of income tax disclosures. The updated standard is effective for our annual periods beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.
In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The updated standard is effective for our annual periods beginning in fiscal year 2024 and interim periods beginning in the first quarter of fiscal year 2025. Early adoption is permitted. We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.
13
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
NOTE 3 – NOTES PAYABLE AND DEBT INSTRUMENTS
The Company’s debt balances, including related party debt, consist of the following at June 30, 2024 and December 31, 2023 (in thousands):
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Green Convertible Notes, interest at |
|
$ |
|
|
$ |
|
||
CSC Equipment Financing Payable, currently bearing interest at a monthly charge of |
|
|
|
|
|
|
||
Revenue Bonds, interest at |
|
|
|
|
|
|
||
Other Debt |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: Original issue discount and debt issuance costs classified as a reduction to long-term debt |
|
|
( |
) |
|
|
( |
) |
Less: Current portion |
|
|
( |
) |
|
|
( |
) |
Long-term debt, less current portion |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Related Party Debt |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Revenue Bonds due to related party, interest rates between |
|
|
|
|
|
|
||
Pure Plastic Note Payable, interest at applicable rate plus margin, as defined ( |
|
|
|
|
|
|
||
Less: Original issue discount and debt issuance costs classified as a reduction to note payable |
|
|
( |
) |
|
|
( |
) |
Less: Current portion |
|
|
( |
) |
|
|
|
|
Related party debt |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Sylebra Line of Credit, $ |
|
$ |
|
|
$ |
|
||
Revenue Bonds
On October 7, 2020, the Southern Ohio Port Authority (“SOPA”) issued certain Revenue Bonds (as defined below) pursuant to an Indenture of Trust dated as of October 1, 2020 (as amended, restated, supplemented or otherwise modified from time to time, the “Indenture”), between SOPA and UMB Bank, N.A., as Trustee (“Trustee”), and loaned the proceeds from their sale to PureCycle: Ohio LLC (“PCO”), an Ohio limited liability company and indirect wholly-owned subsidiary of the Company, pursuant to a Loan Agreement dated as of October 1, 2020, between SOPA and PCO (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”) to be used to, among other things, acquire, construct and equip the Company’s first commercial-scale recycling facility in Lawrence County, Ohio, the Ironton Facility. Capitalized terms used but not defined herein have the meanings ascribed thereto in the Indenture.
14
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
The Revenue Bonds were offered in
On February 10, 2024, PCO announced that it had agreed in principle with the Holders (as defined in the Indenture) of a majority in the aggregate principal amount of the Series 2020A Bonds outstanding (the "Majority Holders") that PCO or an affiliate of PCO would purchase (“Purchase”) from Holders for cash, upon the terms and subject to the conditions to be set forth in a definitive purchase agreement, by and among PCO and any Holder of Bonds that elects to be a party to the purchase agreement (each, a “Seller” and collectively, “Sellers”), any and all Bonds held by Sellers at a purchase price equal to $
The Third Supplemental Indenture amended and supplemented the Indenture and certain of the other Financing Documents (as defined by the Indenture) by, among other things and without limitation, eliminating substantially all covenants and events of default contained in the Indenture ("Events of Default"), the Loan Agreement and certain of such other Financing Documents including, but not limited, to the following changes:
15
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
As of March 5, 2024, (the “Closing Date”) PCO and the Majority Holders closed on the Purchase Agreement and Consent (“Purchase Agreement”) comprising the definitive purchase agreement and, as additional consideration, the consent to the Third Supplemental Indenture, including the Proposed Amendments described therein. PureCycle Technologies LLC, an affiliate of PCO and the Guarantor under the Guaranty, will be the purchaser (“Purchaser”) of Bonds under the Purchase Agreement. The Purchase Agreement was executed by each Holder that elects to sell its Bonds to the Purchaser and by PCO and the Purchase was effective on the Closing Date.
The Purchaser purchased
16
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
extinguishment of the Bonds was recognized in the condensed consolidated statement of comprehensive loss for the six months ended June 30, 2024.
On March 25, 2024, SOPA, as Issuer, PCO, the Guarantor, PCTO Holdco LLC, a Delaware limited liability company and affiliate of PCO (the pledgor under the Equity Pledge and Security Agreement) and the Trustee entered into the Fourth Supplemental Indenture (the “Fourth Supplemental Indenture”) which amended certain provisions of the Indenture, the Loan Agreement and that certain Amended and Restated Guaranty of Completion, entered into as of May 11, 2021, and effective as of October 7, 2020 (the “Guaranty”), by instructing the Trustee to release $
Revenue Bonds Issued to Related Party
On May 7, 2024, PCT LLC and Pure Plastic executed a bond purchase agreement (as subsequently amended and restated to reflect the appropriate denomination of bonds, the “Amended and Restated Bond Purchase Agreement”), whereby Pure Plastic purchased approximately $
On May 10, 2024, Pure Plastic executed a Payoff and Release Letter (the “Payoff and Release Letter”), which memorialized the exchange of the Company’s obligations under the $
On May 28, 2024, PCT LLC and Pure Plastic executed the First Amendment to Amended and Restated Bond Purchase Agreement (“First Amendment”) whereby Exhibit A to the Amended and Restated Bond Purchase Agreement was replaced with Exhibit A-3 to the First Amendment to facilitate the transfer by the Depository Trust Company of certain of the Related Party Bonds. The total amount of the Related Party Bonds and the cash due from Pure Plastic to PCT LLC remains the same. Except as summarized above and as set forth in the First Amendment, PCT LLC and Pure Plastic each acknowledged and reaffirmed the terms of the Amended and Restated Bond Purchase Agreement in the First Amendment.
On June 14, 2024, SOPA, as Issuer, PCO, the Guarantor, PCTO Holdco LLC, a Delaware limited liability company and affiliate of PCO (the pledgor under the Equity Pledge and Security Agreement (as defined in the Fifth Supplemental Indenture)) and the Trustee entered into the Fifth Supplemental Indenture (the “Fifth Supplemental Indenture”) which amended certain provisions of the Indenture including (a) redefining “Majority Holders” to be the Holders of seventy-five percent (
17
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Senior Bonds are then Outstanding, the Holders of seventy-five percent (
The issuance of the Related Party Bonds and retirement of the Term Loan Facility with Pure Plastic was accounted for as a debt modification. The principal issued for the Related Party Bonds amounted to $
Sylebra Credit Facility
On March 15, 2023, PCT entered into the $
On March 1, 2024, PCT increased the Revolving Credit Facility from $
In conjunction with PCT LLC’s sale of approximately $
The Pure Plastic Term Loan Facility
On May 8, 2023, the Company entered into a $
On March 1, 2024, PCT increased the amount available to the Company under the Term Loan Credit Agreement's permitted indebtedness covenant basket for the Revolving Credit Facility from $
18
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
On May 10, 2024, Pure Plastic executed the Payoff and Release Letter, which memorialized the exchange of the Company’s obligations under the Term Loan Credit Agreement. Refer to "Revenue Bonds Issued to Related Party" section above for further discussion.
Green Convertible Notes
On August 21, 2023, the Company priced its private offering of $
Principal repayments due on Long-term debt and Related party note payable over the next five years are as follows (in thousands):
Years ending December 31, |
|
Long-term debt |
|
|
Related party debt |
|
||
2024 (July through December) |
|
$ |
|
|
$ |
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
||
2028 |
|
|
|
|
|
|
||
2029 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Less: Original issue discount and debt issuance costs classified as a reduction to long-term debt |
|
|
( |
) |
|
|
( |
) |
Less: Current Portion |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
||
NOTE 4 - EQUITY-BASED COMPENSATION
2021 Equity Incentive Plan
On March 17, 2021, our stockholders approved the PureCycle Technologies, Inc. 2021 Equity and Incentive Compensation Plan (the “Plan”).
The Plan provides for the grant of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance shares, performance units, dividend equivalents, and certain other awards. In general, the amount of shares issuable under the Plan will be automatically increased on the first day of each fiscal year, beginning in 2022 and ending in 2031, by an amount equal to the lesser of (a)
As of June 30, 2024, approximately
19
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Restricted Stock Agreements
RSUs issued pursuant to the Plan are time-based and vest over the period defined in each individual grant agreement or upon a change of control event as defined in the Plan. The Company recognizes compensation expense for the shares equal to the fair value of the equity-based compensation awards and is recognized on a straight-line basis over the vesting period of such awards. The fair value of the awards is equal to the fair value of the Company’s common stock at the date of grant. The Company has the option to repurchase all vested shares upon a stockholder’s termination of employment or service with the Company.
A summary of restricted stock activity for the six months ended June 30, 2024 is as follows (in thousands except per share data):
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Non-vested at December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|||
Vested |
|
|
( |
) |
|
|
|
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
||
Non-vested at June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|||
Stock Options
The stock options issued pursuant to the Plan are time-based and vest over the period defined in each individual grant agreement or upon a change of control event as defined in the Plan.
The Company recognizes compensation expense for the shares equal to the fair value of the equity-based compensation awards and is recognized on a straight-line basis over the vesting period of such awards.
|
|
June 30, 2024 |
|
|
June 30, 2023 |
|
||
Expected annual dividend yield |
|
|
% |
|
|
% |
||
Expected volatility |
|
|
% |
|
|
% |
||
Risk-free rate of return |
|
|
% |
|
|
% |
||
Expected option term (years) |
|
|
|
|
|
|
||
The expected term of the shares granted is determined based on the period of time the shares are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the Company’s capital structure and volatility of similar entities referred to as guideline companies. The dividend yield on the Company’s shares is assumed to be zero as the Company has not historically paid dividends. The fair value of the underlying Company shares was determined using the Company’s closing stock price on the grant date.
20
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
A summary of stock option activity for the six months ended June 30, 2024 is as follows (in thousands except per share data):
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|||
Balance, December 31, 2023 |
|
|
|
|
$ |
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|||
Exercised |
|
|
( |
) |
|
|
|
|
|
— |
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
— |
|
|
Balance, June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|||
Exercisable |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Weighted average grant date fair values |
|
|
|
|
|
|
|
|
|
|||
Performance-Based Restricted Stock Agreements
The shares issued pursuant to the Performance-Based Restricted Stock Agreements vest depending on if the performance obligations are met. In general, the performance-based stock units (“Performance PSUs”) will be earned based on achievement of pre-established financial and operational performance objectives and will vest on the date the attainment of such performance objectives as determined by the Compensation Committee (the “Committee”) of the Board, subject to the participant’s continued employment with the Company. The Company has also issued performance-based stock units that vest if the market price of the Company’s common stock exceeds a defined target during the performance period (“Market PSUs”, together with the Performance PSUs, the “PSUs”).
The Company issued
The Company recognizes compensation expense for the Performance PSUs equal to the fair value of the equity-based compensation awards and on a straight-line basis over the vesting period of such awards as the Company has concluded the performance condition is probable to be met. The fair value of the awards is equal to the fair value of the Company’s common stock at the date of grant.
A summary of the PSU activity for the six months ended June 30, 2024 is as follows (in thousands except per share data):
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|||
Balance, December 31, 2023 |
|
|
|
|
$ |
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|||
Vested |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
||
Balance, June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|||
21
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Equity-based compensation cost is recorded within the selling, general and administrative expenses within the condensed consolidated statements of comprehensive loss.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, 2024 |
|
|
June 30, 2023 |
|
|
June 30, 2024 |
|
|
June 30, 2023 |
|
||||
Total equity-based compensation for RSUs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total equity-based compensation for PSUs |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Total equity-based compensation for stock options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
NOTE 5 - WARRANTS
RTI Warrants
RTI Global (“RTI”) holds warrants to purchase
A summary of the RTI warrant activity for six months ended June 30, 2024 is as follows (in thousands, except per share data):
|
|
Number of warrants |
|
|
Weighted average exercise price |
|
|
Weighted average grant date fair value |
|
|
Weighted average remaining contractual term (years) |
|
||||
Outstanding at December 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Exercised |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Outstanding at June 30, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||
Exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Refer to Note 9 – Fair Value of Financial Instruments for further information.
Public Warrants and Private Warrants
The Company has outstanding public and private warrants which entitle each holder to exercise its warrants only for a whole number of shares of common stock. Each whole warrant entitles the registered holder to purchase
22
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
to the public warrants, except that the private warrants and the common stock issuable upon exercise of the private warrants were not transferable, assignable or salable until after March 17, 2021, subject to certain limited exceptions. Additionally, the private warrants are non-redeemable so long as they are held by the initial holder or any of its permitted transferees. If the private warrants are held by someone other than the initial holder or its permitted transferees, the private warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants.
The Company may redeem the outstanding warrants in whole, but not in part, at a price of $
The Company has classified the private warrants as a warrant liability as there is a provision within the warrant agreement that allows for private warrants to be exercised via a cashless exercise while held by CR Financial Holdings, Inc. (the “Sponsor”) and affiliates of the Sponsor, but would not be exercisable at any time on a cashless basis if transferred and held by another investor. Therefore, the Company will classify the private warrants as a liability pursuant to ASC 815 until the private warrants are transferred from the initial purchasers or any of their permitted transferees.
There were approximately
Series A Warrants
On March 7, 2022, the Company entered into subscription agreements (the “Subscription Agreements”) with certain investors (the “2022 PIPE Investors”), pursuant to which the Company agreed to sell to the Investors, in a private placement, shares of the Company’s common stock, par value $
On March 17, 2022, the Company closed the 2022 PIPE Offering and issued to the 2022 PIPE Investors an aggregate of
The Company may redeem the outstanding Series A Warrants in whole, but not in part, at a price of $
23
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
redemption, management will have the option to require all holders that wish to exercise the warrants to do so on a cashless basis. In no event will the Company be required to net cash settle the warrant exercise.
The agreements governing the Series A Warrants (the “Series A Warrant Agreements”) provide for a Black-Scholes value calculation (“Black-Scholes Value”) in the event of certain transactions (“Fundamental Transactions”), which includes a floor on volatility utilized in the value calculation at
As of June 30, 2024, there were approximately
Series B Warrants
On May 10, 2024, pursuant to the Series B Warrant Agreement, the Company issued Series B Warrants to Pure Plastic to purchase an aggregate of
At any time following January 1, 2028, the Company may redeem the outstanding Series B Warrants in whole, but not in part, at a price of $
The Series B Warrant Agreement provides for a Black-Scholes Value in the event of Fundamental Transactions, which includes a floor on volatility utilized in the value calculation at
As of June 30, 2024, there were approximately
24
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Warrant expense (benefit) recognized for each period is presented in the following table (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
RTI warrants |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Private placement warrants |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Series A warrants |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Series B warrants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in fair value of warrants |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
NOTE 6 – NET LOSS PER SHARE
The Company follows the two-class method when computing net loss per common share when shares are issued that meet the definition of participating securities. The two-class method requires income available to common shareholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The two-class method also requires losses for the period to be allocated between common and participating securities based on their respective rights if the participating security contractually participates in losses. As holders of participating securities do not have a contractual obligation to fund losses, undistributed net losses are not allocated to nonvested restricted stock for purposes of the loss per share calculation.
Presented in the table below is a reconciliation of the numerator and denominator for the basic and diluted earnings per share (“EPS”) calculations for the three and six months ended June 30, 2024 and 2023 (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss attributable to common shareholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding, basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share attributable to common stockholder, basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Certain outstanding common share equivalents were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented as including them would have been anti-dilutive.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Anti-dilutive awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrants, outstanding not exercised |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock options, outstanding not exercised |
|
|
|
|
|
|
|
|
|
|
|
|
||||
RSU, non-vested |
|
|
|
|
|
|
|
|
|
|
|
|
||||
PSU, non-vested |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingently - issuable shares related to the earnout |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Shares issuable upon conversion of Green Convertible Notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
25
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT
Presented in the table below are the major classes of property, plant and equipment by category as of the below dates (in thousands):
|
|
June 30, |
|
|||||||||
|
|
Cost |
|
|
Accumulated |
|
|
Net Book |
|
|||
Building |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Machinery and equipment |
|
|
|
|
|
|
|
|
|
|||
Leasehold Improvements |
|
|
|
|
|
|
|
|
|
|||
Fixtures and Furnishings |
|
|
|
|
|
|
|
|
|
|||
Land improvements |
|
|
|
|
|
|
|
|
|
|||
Land |
|
|
|
|
|
|
|
|
|
|||
Construction in process |
|
|
|
|
|
|
|
|
|
|||
Total property, plant and equipment |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
December 31, 2023 |
|
|||||||||
|
|
Cost |
|
|
Accumulated |
|
|
Net Book |
|
|||
Building |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Machinery and equipment |
|
|
|
|
|
|
|
|
|
|||
Leasehold Improvements |
|
|
|
|
|
|
|
|
|
|||
Fixtures and Furnishings |
|
|
|
|
|
|
|
|
|
|||
Land improvements |
|
|
|
|
|
|
|
|
|
|||
Land |
|
|
|
|
|
|
|
|
|
|||
Construction in process |
|
|
|
|
|
|
|
|
|
|||
Total property, plant and equipment |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Depreciation expense is recorded in the condensed consolidated statements of comprehensive loss as follows:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
||
Operating costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Research and development expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general, and administrative expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total depreciation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
NOTE 8 - INCOME TAXES
The Company has determined that any net deferred tax assets are not more likely than not to be realized in the future, and a full valuation allowance is required. In addition, the Company has determined that any current forecasted operations would result in federal and state income tax losses which are also not more likely than not to be realized. As a result, for the periods ended June 30, 2024 and 2023, the Company has reported tax expense of $
26
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
NOTE 9 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and sets out a fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Inputs are broadly defined as assumptions market participants would use in pricing an asset or liability. Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 - Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly, and fair value is determined through the use of models or other valuation methodologies
Level 3 - Inputs are unobservable for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. The inputs into the determination of fair value are based upon the best information in the circumstances and may require significant management judgment or estimation.
Assets and liabilities measured and recorded at Fair Value on a recurring basis
As of June 30, 2024 and December 31, 2023, the Company’s financial assets and liabilities measured and recorded at fair value on a recurring basis were classified within the fair value hierarchy as follows (in thousands):
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||||||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Restricted cash equivalents - current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Restricted cash equivalents - noncurrent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial paper, available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
US Treasury Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total investments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Warrant liability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
RTI warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Private warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Series A warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Series B warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total warrant liability |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
For the instruments classified as level 3 (discussed further below), significant changes in any of the significant unobservable inputs in isolation would not result in a materially different fair value estimate. However, since each of instruments classified as level 3 are being valued using similar inputs, a significant change that would impact expected volatility or the market price of PCT's common stock could result in a material change to the total
27
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
combined value of these instruments. An increase in one or both of these inputs would result in a higher assessed value for each instrument.
Measurement of the Private Warrants
The private warrants are measured at fair value on a recurring basis using a Black-Scholes model. The private warrants are classified as Level 3 and were valued using the following assumptions:
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Expected annual dividend yield |
|
|
% |
|
|
% |
||
Expected volatility |
|
|
% |
|
|
% |
||
Risk-free rate of return |
|
|
% |
|
|
% |
||
Expected option term (years) |
|
|
|
|
|
|
||
The expected term of the warrants granted is determined based on the duration of time the warrants are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the implied volatility calculated for the Company’s public warrants, which have similar characteristics to the private warrants. The dividend yield on the Company’s warrants is assumed to be
The aggregate values of the private warrants were $
A summary of the private warrants activity from December 31, 2023 to June 30, 2024 is as follows (in thousands):
|
|
Fair value |
|
|
Balance, December 31, 2023 |
|
$ |
|
|
Change in fair value |
|
|
|
|
Balance, June 30, 2024 |
|
$ |
|
|
Refer to Note 5 – Warrants for further information.
Measurement of the RTI warrants
The Company has determined the RTI Warrants to be a Level 3 fair value measurement and has remeasured using a Binomial Tree option pricing model to calculate its fair value using the following assumptions:
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Expected annual dividend yield |
|
|
% |
|
|
% |
||
Expected volatility |
|
|
% |
|
|
% |
||
Risk-free rate of return |
|
|
% |
|
|
% |
||
Expected option term (years) |
|
|
|
|
|
|
||
The expected term of the warrants granted is determined based on the duration of time the warrants are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is calculated based on the specific volatility of PCT’s publicly-traded common stock. In determining similar entities, the Company considered industry, stage of life cycle, size and financial leverage. The dividend yield on the Company’s warrants is assumed to be
28
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
dividends. The fair value of the underlying Company shares was determined using the Binomial Tree model calculation.
The Company has an option to repurchase the warrants at any time. The maximum fair value of the warrants is limited by the fair value of the repurchase option, which cannot exceed $
Changes in Level 3 liabilities measured at fair value from December 31, 2023 to June 30, 2024 are as follows (in thousands):
|
|
Fair value |
|
|
Balance, December 31, 2023 |
|
$ |
|
|
Change in fair value |
|
|
|
|
Balance, June 30, 2024 |
|
$ |
|
|
Measurement of the Series A Warrants
The Series A Warrants meet the definition of derivative instruments and are measured at fair value on a recurring basis using the market price of the Company’s publicly traded warrants, with changes in fair value recorded in current earnings. The Company has determined the publicly traded warrants to be an appropriate proxy to value the Series A Warrants as both warrants have similar redemption features and the same exercise price. The Series A Warrants are classified as Level 2 for both initial measurement at issuance and subsequent measurement each period.
Measurement of the Series B Warrants
The Series B Warrants meet the definition of derivative instruments and are measured at fair value on a recurring basis.
|
|
June 30, 2024 |
|
|
May 10, 2024 |
|
||
Expected annual dividend yield |
|
|
% |
|
|
% |
||
Expected volatility |
|
|
% |
|
|
% |
||
Risk-free rate of return |
|
|
% |
|
|
% |
||
Expected option term (years) |
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The expected term of the warrants granted is determined based on the duration of time the warrants are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the valuation date. The expected volatility is based on the implied volatility calculated for the Company’s public warrants, which have similar characteristics to the Series B Warrants. The dividend yield on the Company’s warrants is assumed to be
Changes in Level 3 liabilities measured at fair value from May 10, 2024 to June 30, 2024 are as follows (in thousands):
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|
Fair value |
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Balance, May 10, 2024 (Initial recognition date) |
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$ |
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|
Change in fair value |
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|
|
|
Balance, June 30, 2024 |
|
$ |
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|
29
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Assets and liabilities recorded at carrying value
In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to fair value measurements.
The Company records cash and accounts payable at cost, which approximates fair value due to their short-term nature or stated rates. The Company records debt at cost.
NOTE 10 - AVAILABLE-FOR-SALE INVESTMENTS
The Company classifies its investments in debt securities as available-for-sale. Debt securities have been historically comprised of highly liquid investments with minimum “A” rated securities. The debt securities have historically been reported at fair value with unrealized gains or losses recorded in accumulated other comprehensive income in the condensed consolidated balance sheets. Refer to Note 9 – Fair Value of Financial Instruments for information related to the fair value measurements and valuation methods utilized.
The Company did not hold any available-for-sale investments as of June 30, 2024.
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December 31, 2023 |
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Amortized |
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Gross |
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Gross |
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Total |
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Commercial Paper |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Corporate Bonds |
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Municipal Bonds |
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Total |
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$ |
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$ |
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$ |
( |
) |
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$ |
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The following table represents the Company’s available-for-sale investments by contractual maturity as of June 30, 2024 and December 31, 2023 (in thousands):
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June 30, 2024 |
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December 31, 2023 |
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Amortized |
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Fair Value |
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Amortized |
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Fair Value |
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Due within one year |
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$ |
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$ |
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$ |
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$ |
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Due after one year through five years |
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Total |
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$ |
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$ |
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$ |
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$ |
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The Company reviews available-for-sale investments for other-than-temporary impairment loss periodically. The Company considers factors such as the duration, severity and the reason for the decline in value, the potential recovery period and our intent to sell. For debt securities, we also consider whether (i) it is more likely than not that the Company will be required to sell the debt securities before recovery of their amortized cost basis and (ii) the amortized cost basis cannot be recovered as a result of credit losses. During the six months ended June 30, 2024 and 2023, the Company did
30
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Financial Assurance
On March 14, 2024, PCT renewed a surety bond in the amount of $
These financial instruments are issued in the normal course of business and are not considered company indebtedness. Because PCT currently has no liability for these financial assurance instruments, they are not reflected in its consolidated balance sheets.
Legal Proceedings
PCT is subject to legal and regulatory actions that arise from time to time in the ordinary course of business. The assessment as to whether a loss is probable or reasonably possible, and as to whether such loss or a range of such losses is estimable, often involves significant judgment about future events, and the outcome of litigation is inherently uncertain. Other than as described below, there is no material pending or threatened litigation against PCT that remains outstanding as of June 30, 2024.
Shareholder Securities Litigation
Beginning on or about May 11, 2021,
On April 2, 2024, the Company reached a tentative settlement of the Consolidated Theodore Lawsuit (the “Securities Settlement”), which was memorialized in a Stipulation of Settlement dated May 6, 2024. Under the terms of the Securities Settlement, all known and unknown claims shall be settled for $
On September 29, 2023, Jay Southgate, a purported shareholder, filed a complaint in the U.S. District Court for the Southern District of New York against PCT, and certain senior members of management (“Individual Southgate Defendants”), asserting violations of federal securities laws under Section 10(b) and Section 20(a) of the Exchange Act (the "Southgate Lawsuit"). The complaints generally allege that the applicable defendants made false and/or
31
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
misleading statements in press releases and public filings between August 8, 2023 and September 13, 2023, regarding the status of commissioning activities at the Ironton Facility, and specifically the impact of a power outage at the Ironton Facility in August 2023 and subsequent seal system failure in September 2023. Purported shareholders filed motions to be appointed lead plaintiff in the action, and on February 20, 2024, the Court appointed James Smith as Lead Plaintiff and Glancy Prongay & Murray LLP as Lead Counsel.
On April 5, 2024, plaintiffs in the Southgate matter filed an amended complaint (“Amended Southgate Complaint”), in which the plaintiffs allege the Company and the Individual Southgate Defendants violated Section 10(b) and Section 20(a) of the Exchange Act. The Amended Southgate Complaint alleges that beginning in April 2023 through December 2023, the Company and the Individual Southgate Defendants made misleading and inaccurate statements and omissions regarding the operations at the Ironton Facility, PCT’s ability to meet certain milestones and alleged issues with certain third-party contractors. On May 6, 2024, the Company and the Individual Southgate Defendants filed a motion to dismiss the Southgate complaint. On June 5, 2024, plaintiffs filed their brief in opposition to the Company and Individual Southgate Defendants motion to dismiss. On June 5, 2024, the Company and the Individual Southgate PCT Defendants filed a reply to the plaintiffs' brief.
PCT, the PCT Defendants and the Individual Southgate Defendants intend to vigorously defend against the
Amended Southgate Complaint. Given the stage of the litigation, PCT cannot reasonably estimate at this time whether there will be any loss, or if there is a loss, the possible range of loss, that may arise from the Southgate Lawsuit.
Han, Ayers, and Brunson Derivative Litigation
On November 3, 2021, Byung-Gook Han, a purported PCT shareholder, derivatively and purportedly on behalf of PCT, filed a shareholder derivative action in the United States District Court for the District of Delaware (Byung-Gook Han v. Otworth et. al., Case No. 1:21-cv-01569-UNA) against certain senior members of PCT’s management, PCT’s directors and Byron Roth, who was subsequently dismissed (collectively, the “Individual Han Defendants”), alleging violations of Section 20(a) of the Exchange Act and breaches of fiduciary duties and bringing claims for unjust enrichment and waste of corporate assets (“Han Derivative Lawsuit"). On January 19, 2022, the court granted the parties’ joint stipulation to stay the Han Derivative Lawsuit and administratively closed the matter pending the disposition of the motions to dismiss the Consolidated Theodore Lawsuit.
On January 27, 2022, Patrick Ayers, a purported PCT shareholder, derivatively and purportedly on behalf of PCT, filed a shareholder derivative action in the United States District Court of the District of Delaware, captioned Patrick Ayers v. Otworth et. al., Case No. 1:22-cv-00110, against certain members of PCT’s management, PCT’s directors and others (collectively, the “Individual Ayers Defendants”), alleging violations of Section 20(a) of the Exchange Act and breaches of fiduciary duties, as well as claims for unjust enrichment, gross mismanagement, contribution, and indemnification (“Ayers Derivative Lawsuit").
On March 17, 2022, the court granted the parties’ joint stipulation to stay the Ayers Derivative Lawsuit and administratively closed the matter pending the disposition of the motions to dismiss the Consolidated Theodore Lawsuit.
After the court in the Consolidated Theodore Lawsuit ruled on the second motion to dismiss, the stay in the derivative actions was lifted. Ayers and Han (collectively the “Derivative Plaintiffs”), PCT and the Individual Ayers and Han Defendants (collectively, the “Individual Derivative Defendants”) filed a joint stipulation to consolidate the related derivative actions on June 26, 2023. The court granted the motion to consolidate the derivative actions on June 27, 2023, and ordered the Consolidated Derivative Action to be captioned In re: PureCycle Technologies, Inc.
32
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Derivative Litigation, Lead Case No. 21-1569-RGA (D. Del.) (“Consolidated Derivative Litigation”). In light of the Motion for Reconsideration in the Consolidated Theodore Lawsuit, the Derivative Plaintiffs, PCT, and Individual Derivative Defendants filed a joint stipulation to continue the stay of the Consolidated Derivative Litigation until thirty days after the court in the Class Action rules on the Motion for Reconsideration. The Motion for Reconsideration in the Consolidated Theodore Lawsuit remains pending.
On February 23, 2024, Ayers filed an amended derivative complaint under seal. The Consolidated Amended Derivative Complaint generally alleges that the Individual Derivative Defendants made materially false and misleading statements and omissions in press releases, webinars and other public filings regarding PCT’s business, the technology, PCT’s prospects, the background and experience of the Individual Derivative Defendants, PCT’s internal controls, and various production issues and delays. The Consolidated Amended Derivative Complaint seeks unspecified monetary damages, reform of the corporate governance and internal procedures, unspecified restitution from the Individual Han Defendants, and costs and fees associated with bringing the action. At this stage of the litigation, neither PCT nor the Individual Ayers Defendants have answered the Consolidated Amended Derivative Complaint, moved to dismiss the complaint, or otherwise responded to the complaint.
On March 29, 2024, John Brunson, a purported PCT shareholder, and on behalf of whom the February 2023 Delaware 220 demand referenced below was issued to the Company, derivatively and purportedly on behalf of PCT, filed a shareholder derivative action under seal in the Court of Chancery in the State of Delaware, captioned John Brunson v. Otworth et. al., against certain members of PCT’s management, PCT’s directors and others (collectively, the “Individual Brunson Defendants”), alleging breaches of fiduciary duties, aiding and abetting breaches of fiduciary duty, corporate waste, and unjust enrichment (“Brunson Derivative Lawsuit"). The Brunson Derivative Lawsuit generally contains similar allegations as contained in Consolidated Derivative Amended Derivative Complaint, as well as allegations regarding undisclosed operational risks, production issues and delays, persistent failure to remediate known material deficiencies, including inadequate staffing, lack of segregation of duties, unfamiliarity with financial reporting requirements, and lack of accounting resources, leading to revisions of prior financial statements. The Brunson Derivative Lawsuit also references two reports by Bleeker Street Research in November 2023 which alleged that the Company had misled investors about the launch of the Ironton Facility, and would not meet its production targets. Plaintiffs also point to and discuss the Theodore Securities Class Action and the Southgate Amended Complaint and allege that PCT is exposed to liability in those cases. The Brunson Derivative Lawsuit seeks unspecified monetary damages, declaratory relief, unspecified disgorgement and restitution from the Individual Brunson Defendants, and costs and fees associated with bringing the action.
On May 7, 2024, the Company entered into a memorandum of understanding agreement to settle the Ayers Derivative Lawsuit, the Brunson Derivative Lawsuit and certain shareholder demand letters described below under the heading Other Matters (the “Settling Demand Letters”), including demands under Delaware Code Section 220 and/or investigation demands (the “Derivative Settlement”). On July 17, 2024, the parties executed a Stipulation of Settlement. Under the proposed terms of the Stipulation in the Derivative Settlement, all claims shall be settled in exchange for certain corporate therapeutics and a monetary component of $
33
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial position, results of operations, or cash flows.
Denham-Blythe Arbitration
On October 7, 2020, PCO, a subsidiary of PCT and Denham-Blythe Company, Inc. (“DB”) executed an Engineering, Procurement, and Construction Agreement for certain construction activities associated with the Ironton Facility (“EPC Contract”).
On June 16, 2023, following unsuccessful efforts at mediating various disputes over certain unapproved change orders and payment applications, DB filed a demand for binding arbitration (“Arbitration Demand”) with the American Arbitration Association (“AAA”), seeking approximately $
On August 30, 2023, DB filed a breach of contract claim against PCO and others in Lawrence County Ohio, alleging the same facts contained in its arbitration demand, as well as an action to foreclose on a lien filed in Lawrence County, Ohio. Concurrently DB requested the complaint be stayed pending the resolution of all issues in the arbitration. On December 12, 2023, defendant UMB Bank, N.A. (“UMB”) filed an Answer and Counterclaim against DB. On January 9, 2024, the Lawrence County Court granted DB’s request for a stay of the lawsuit pending the resolution of the arbitration proceeding.
On March 8, 2024, ISC Constructors, a DB subcontractor, filed an action in equity for unjust enrichment against PCO in Lawrence Co. Ohio Case # 240C000171. The lawsuit alleges $
PCO intends to vigorously defend itself against DB’s claims and to pursue recovery of damages resulting from DB’s failure to perform adequately under the EPC Contract. Given the stage of the arbitration, PCT cannot reasonably estimate at this time whether there will be any loss, or if there is a loss, the possible range of loss, that may result from the Arbitration Demand.
Other Matters
On February 3, 2023, the Company received a books and records demand pursuant to Section 220 of the Delaware General Corporation Law, from a purported stockholder of the Company, in connection with the stockholder’s investigation of, among other matters, potential breaches of fiduciary duty, mismanagement, self-dealing, corporate waste or other violations of law by the Company’s Board with respect to these matters.
34
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
On October 6, 2023 and October 27, 2023, the Company received
On April 25, 2024, the Company received a litigation demand letter from a purported shareholder, Selim Piot, requesting that the Board take action against certain officers and directors. On May 6, 2024, Mr. Piot served a books and records demand and initiated a derivative action in the Chancery Court of Delaware captioned Piot v. Bouck, et al., No. 2024-0475-NAC (Del. Ch.). On May 21, 2024, Mr. Piot served another books and records demand. The claims asserted in Mr. Piot’s demand letters and derivative action are substantially similar to those asserted in the Ayers and Brunson Derivative Lawsuits and the Demand Letters. We are currently unable to predict the outcome of this matter.
NOTE 12 - LEASES
On May 14, 2024, the Company sublet the leased space that previously housed its corporate headquarters in Orlando, FL and will have no further involvement in that property. The Company recognized a $
NOTE 13 - SUBSEQUENT EVENTS
In connection with the preparation of the condensed consolidated interim financial statements for the period ended June 30, 2024, management has evaluated events through August 8, 2024 to determine whether any events required recognition or disclosure in the condensed consolidated interim financial statements. The following subsequent events were identified through the date of these condensed consolidated interim financial statements:
On July 12, 2024, PCT entered into an equipment financing arrangement with Varilease Finance, Inc. ("VFI") pursuant to a master lease agreement dated June 24, 2024, and received progress funding of $
On August 7, 2024, PCT LLC, Pure Plastic, and several other parties reached agreement on terms whereby certain purchasers would purchase approximately $
35
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which PCT’s management believes is relevant to an assessment and understanding of PCT’s condensed consolidated results of operations and financial condition. The discussion should be read together with the audited Consolidated Financial Statements and the accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s most recent Annual Report on Form 10-K, as well as the unaudited condensed consolidated interim financial statements, together with related notes thereto, included elsewhere in this Quarterly Report on Form 10-Q. This discussion may contain forward-looking statements based upon current expectations that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in the Company’s most recent Annual Report on Form 10-K. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our,” and “the Company” are intended to mean the business and operations of PCT and its consolidated subsidiaries.
Overview
PureCycle Technologies, Inc. (“PCT” or “Company”) is a Florida-based corporation focused on commercializing a patented purification recycling technology (the “Technology”), originally developed by The Procter & Gamble Company (“P&G”), for restoring waste polypropylene into resin, called ultra-pure recycled (“UPR”) resin, which has nearly identical properties and applicability for reuse as virgin polypropylene. PCT has a global license for the Technology from P&G. PCT’s goal is to create an important new segment of the global polypropylene market that will assist multinational entities in meeting their sustainability goals, providing consumers with polypropylene-based products that are sustainable, and reducing overall polypropylene waste in the world’s landfills and oceans.
PCT’s process includes two steps: Feed Pre-Processing (“Feed PreP”) and the use of PCT’s recycling technology for purification. The Feed PreP step will collect, sort, and prepare polypropylene waste (“feedstock”) for purification. The purification step is a purification recycling process that uses a combination of solvent, temperature, and pressure to return the feedstock to near-virgin condition through a novel configuration of commercially available equipment and unit operations. The purification process puts the plastic through a physical extraction process using super critical fluids that both extract and filter out contaminants and purify the color, opacity, and odor of the plastic without changing the bonds of the polymer. By not altering the chemical makeup of the polymer, the Company is able to use significantly less energy and reduce production costs as compared to virgin resin.
The Ironton Facility
PCT commenced commissioning activities at its first commercial-scale plant in Lawrence County, Ohio (referred to herein as the “Ironton Facility”), in April 2023, achieved mechanical completion of the plant and commenced pellet production from post-industrial and post-consumer materials later in 2023. The Ironton Facility leverages the existing infrastructure of PCT’s pilot facility known as the Feedstock Evaluation Unit (the “FEU”), which became operational in 2019, and the Ironton Facility is expected to have UPR resin capacity of approximately 107 million pounds/year when fully operational. PCT sold an immaterial amount of resin through the first six months of 2024 but has not yet reached meaningful volumes and on-spec product. PCT has experienced intermittent mechanical challenges during the commissioning process including, but not limited to, limits in the rates at which certain contaminants can currently be removed from the purification process, as well as challenges with continuous operations of the pelletizing system for finished product. Recently, PCT has been focused on the recovery and removal of polyethylene and other solids (“co-product 2” or “CP2”), which impacts the ability to run higher volumes
36
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
and produce consistent, high quality UPR resin. PCT believes it has identified multiple potential solutions that are expected to improve the ability to recover and remove CP2, as well as increase operational reliability. While these mechanical issues are not uncommon for first-of-its kind manufacturing facilities, the downtime needed to correct these issues is delaying the Ironton Facility from reaching consistent sustainable production rates. In addition to pursuing solutions for CP2 removal, the Company is also evaluating processes that blend its resin with either post-industrial recycled material or virgin polypropylene, which is expected to improve product consistency and enhance the product delivery to customers.
The Augusta Facility
In July 2021, PCT reached an agreement with The Augusta Economic Development Authority (“AEDA”) to build its first U.S. facility with multiple lines for both Feed PreP and purification (“multi-line facility”) in Augusta, Georgia (the “Augusta Facility”). PCT expects the approximately 200-acre location to eventually include up to eight production lines, which are expected to collectively have UPR resin production capacity of approximately 1 billion pounds per year. When fully operational, each purification line at the Augusta Facility is expected to have annual production capacity of approximately 130 million pounds of PCT’s UPR resin. PureCycle has allocated 40% of the Augusta Facility output, for Lines 1 and 2, to existing customers and expects that additional offtake agreements will continue to be negotiated.
On June 30, 2023, PCT and the AEDA executed an Economic Development Agreement (“EDA”) related to the Company’s plans to construct the Augusta Facility. Pursuant to the EDA, PCT expects to receive certain property tax abatement benefits as well as certain other incentives, including site infrastructure development assistance (“Incentive Benefits”). In order to receive the Incentive Benefits under Phase One (as defined below) of the Augusta Project, PCT will be obligated to create 82 full-time jobs with investments of at least $440 million no later than December 31, 2026. Through June 30, 2024, PCT has invested approximately $91.9 million for pre-construction engineering and long-lead equipment for the benefit of Phase One investments. If PCT elects to activate the second phase of the Augusta Project, PCT will be required to create an additional 25 full-time jobs and investments of $295 million no later than December 31, 2028. To the extent PCT fails to achieve an average of 80% of the jobs and investment commitments in any year over the 20-years of each phase, PCT will be required to make a repayment to the AEDA of a pro rata portion of the total value of the Incentive Benefits received by PCT in such year.
Also on June 30, 2023, PCT entered into a series of agreements with the AEDA to construct phase one (“Phase One”) of the Augusta Facility. PCT is leasing 150 acres of land (“Real Property”) owned by the AEDA and will construct buildings, building equipment, and other structures (the “Improvements”) on the land. PCT will also acquire and install the necessary processing, warehousing, and other equipment, as well as conveyors and pipelines (the “Equipment”, together with the Real Property and the Improvements, the “Augusta Project”). The Improvements and Equipment will be transferred to the AEDA and leased back by PCT. As noted above, PCT anticipates that the first portion of Phase One will consist of one purification line and construction commenced prior to the end of 2023. Also as noted above, construction of the first purification line must be completed by December 31, 2026.
The legal sale-leaseback structure provides the Incentive Benefits to PCT as lessee of the Augusta Project. PCT will remain the owner of the Improvements and Equipment for accounting purposes during the term of the lease as PCT will have the right to acquire title to the Augusta Project for a nominal amount during the term and at the conclusion of the arrangement, which has an initial expiration date in 2044. The payments PCT makes to the AEDA during the term of the arrangement are not otherwise expected to be material.
At the end of 2023, the Company commenced site preparation activities, including debris removal and site stabilization activities, and continued with payments to vendors for certain long lead-time equipment. Pursuant to the EDA, PCT must also show continuous construction progress, with regard to the first purification line under the
37
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
first phase of the Augusta Project during 2024 or risk losing certain future Incentive Benefits. While the Company believes it has satisfied the contractual obligations regarding financing and construction of Phase One to date, the AEDA believes that it could seek to terminate the lease if PCT does not demonstrate further progress on Phase One. Market conditions remain challenging and have created uncertainty as to the timing or likelihood of success of the currently anticipated project financing for the Augusta Facility. As a result, PCT is currently pursuing various structures for project financing of the Augusta Facility. While PCT remains confident in its ability to finance the Augusta Facility, it is limiting its expenses and adjusting its timeline in light of this uncertainty. If PCT is unable to raise additional debt or equity, when desired, or on terms favorable to PCT, PCT’s business, financial condition, and results of operations would be adversely affected.
Feedstock Pricing
PCT sees a robust pipeline of demand for its recycled polypropylene and PCT is seeing market acceptance of its “Feedstock+” pricing model for its UPR resin. The “Feedstock+” pricing model divides the market cost of feedstock by a set yield-loss and adds a fixed price, which effectively passes on the cost of feedstock and de-risks PCT’s operating margin volatility.
For the Ironton Facility, PCT’s feedstock price was linked, in part, to changes in the Chemical Market Analysis, the index for virgin polypropylene, in a price schedule that contained a fixed, collared price around an index price range, which was further adjusted based on the percentage of polypropylene in the feedstock supplied. For the Augusta Facility and future purification facilities, PCT plans to link the feedstock price, in part, to the price of a no. 5 plastic bale of polypropylene as reported by recyclingmarkets.net (“Feedstock Market Pricing”). PCT will procure both feedstock in line with Feedstock Market Pricing as well as low value feedstocks that can be processed by PCT, below Feedstock Market Pricing for the Augusta Facility.
PreP Facilities
In conjunction with the Augusta Facility, PCT also plans to build and operate Feed PreP facilities in locations geographically near the feed sources to optimize PCT’s supply chain economics. During the third quarter of 2022, PCT experienced challenges obtaining the necessary water and sewer permits to construct its first planned Feed PreP facility in Central Florida. PCT is evaluating its available recourses, including legal requirements and remedies with regard to its obligations for the remaining 8 years of its 11-year lease agreement for the Central Florida facility. PCT is also evaluating alternative preprocessing sites in other locations. Also, on August 24, 2022, PCT signed a lease for a future PreP facility in Denver, Pennsylvania, which is expected to be operationally ready in late 2024. Throughout the second half of 2021, PCT developed a feedstock processing system with advanced sorting capabilities that can handle various types of plastics in addition to polypropylene (designated as no. 5 plastic). PCT’s enhanced sorting should allow PCT to process plastic bales between no. 1 and no. 7. PCT’s new Feed PreP facilities will extract polypropylene and ship it to PCT’s purification lines, while the non-polypropylene feed will be sorted, baled, and subsequently sold on the open market.
Letter of No Objection Submission and the Granting of FDA Food Packaging Clearances for Certain Feedstocks
On September 10, 2021, PCT filed for a U.S. Food and Drug Administration (“FDA”) Letter of No Objection (“LNO”), for Conditions of Use A – H. Conditions of Use describe the temperature and duration at which a material should be tested to simulate the way the material is intended to be used. Conditions of Use C – H address many consumer product packaging requirements, including applications for hot filled and pasteurized, as well as room temperature, refrigerated and frozen applications. Generally speaking, Conditions of Use A and B relate to extreme temperature applications. The LNO submission also defines the feedstock sources for the Company’s planned commercial recycling process, and this LNO submission pertained to (i) food grade post-industrial recycled feedstocks and (ii) food grade curbside post-consumer recycled feedstocks.
38
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
The FDA confirmed receipt of the submission on September 13, 2021 and followed up with additional questions and requests for clarification in a letter received by PCT on January 7, 2022. PCT responded to the FDA’s questions on February 17, 2022.
On September 6, 2022, PCT received two separate notifications from the FDA with respect to the following two feedstock sources:
(i) Food grade post-industrial recycled feedstocks: an FDA opinion letter approving Conditions of Use A – H and
(ii) Food-grade post-consumer recycled feedstock from stadiums: an FDA LNO for Conditions of Use E – G.
On June 11, 2024, the Company received an additional LNO from the FDA, which expands upon the previous LNO and allows use of PCT's UPR resin (to the extent made from food grade post-consumer recycled material) in contact with all food types under FDA's Conditions of Use A through H. This expansion provides PCT with the same Conditions of Use for its UPR resin as virgin polypropylene, which span from frozen food storage to microwaveable packaging.
The Company’s FDA food contact grades are capable of being used for all food types per the conditions of use listed and per all applicable authorizations in the food contact regulations listed in the 21 CFR (Code of Federal Regulations, Title 21).
The Company is conducting additional testing and plans to make further LNO submissions for additional post-consumer recycled feedstock sources and expanded Conditions of Use.
Future Expansion
On January 17, 2023, the Company announced that its first European purification facility will be in Antwerp, Belgium. On October 20, 2022, the Company executed a Joint Venture Agreement with SK geo centric Co., Ltd., to develop a UPR purification facility in Ulsan, South Korea. The parties will each hold an equal stake in the joint venture with commencement of construction activities pending necessary financing. The Company is also planning to expand its production capabilities into Asia through negotiation of joint ventures with Mitsui & Co. Ltd. in Japan for in-country production and sales. Future expansion is dependent on successful completion of project financing.
Components of Results of Operations
Revenue
PCT generated an immaterial amount of revenue through the first six months of 2024 but has not yet reached (i) significant continuous operational volumes at the Ironton Facility or (ii) significant revenue generation.
Operating Costs
Operating expenses to date have consisted mainly of personnel costs (including wages, salaries and benefits) and other costs directly related to operations at PCT’s operating facilities, including rent, depreciation, repairs and maintenance, utilities and supplies. Costs attributable to the design and development of the Ironton Facility, Augusta Facility, and Feed PreP facilities in Central Florida and Denver, Pennsylvania, are capitalized and, when placed in service, will be depreciated over the expected useful life of the asset. We expect our operating costs to increase as we continue to scale operations and increase headcount.
Research and Development Expense
Research and development expenses consist primarily of costs related to the development of the Technology, the facilities and equipment that will use the Technology to purify recycled polypropylene, and the processes needed to collect, sort, and prepare feedstock for purification. These include mainly personnel costs, depreciation for long-lived assets, third-party consulting costs, and the cost of various recycled waste. We expect our research and
39
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
development expenses to increase for the foreseeable future as we increase investment in feedstock evaluation, including investment in new front-end feedstock mechanical separators to improve feedstock purity and increase the range of feedstocks PCT can process economically. In addition, we are increasing our in-house feedstock analytical capabilities, which will include additional supporting equipment and personnel.
Selling, General and Administrative Expense
Selling, general and administrative expenses consist primarily of personnel-related expenses for our corporate, executive, finance and other administrative functions and professional services, including legal, audit and accounting services. We expect our selling, general, and administrative expenses to increase for the foreseeable future as we scale headcount with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.
Results of Operations
Comparison of three and six months ended June 30, 2024 and 2023
The following table summarizes our operating results for the three and six months ended June 30, 2024 and 2023:
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Three Months Ended June 30, |
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Six Months Ended June 30, |
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
||||||||
(in thousands, except %) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
||||||||
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Operating costs |
|
$ |
22,220 |
|
|
$ |
11,612 |
|
|
$ |
10,608 |
|
|
|
91 |
% |
|
$ |
43,414 |
|
|
$ |
18,984 |
|
|
$ |
24,430 |
|
|
|
129 |
% |
Research and development |
|
|
1,565 |
|
|
|
1,571 |
|
|
|
(6 |
) |
|
|
(0 |
)% |
|
|
3,396 |
|
|
|
3,325 |
|
|
|
71 |
|
|
|
2 |
% |
Selling, general and administrative |
|
|
16,137 |
|
|
|
13,410 |
|
|
|
2,727 |
|
|
|
20 |
% |
|
|
32,094 |
|
|
|
26,105 |
|
|
|
5,989 |
|
|
|
23 |
% |
Total operating costs and expenses |
|
|
39,922 |
|
|
|
26,593 |
|
|
|
13,329 |
|
|
|
50 |
% |
|
|
78,904 |
|
|
|
48,414 |
|
|
|
30,490 |
|
|
|
63 |
% |
Interest expense |
|
|
12,055 |
|
|
|
4,027 |
|
|
|
8,028 |
|
|
|
199 |
% |
|
|
27,109 |
|
|
|
4,684 |
|
|
|
22,425 |
|
|
|
479 |
% |
Interest income |
|
|
(514 |
) |
|
|
(1,578 |
) |
|
|
1,064 |
|
|
|
(67 |
)% |
|
|
(4,116 |
) |
|
|
(3,511 |
) |
|
|
(605 |
) |
|
|
17 |
% |
Change in fair value of warrants |
|
|
(4,311 |
) |
|
|
26,313 |
|
|
|
(30,624 |
) |
|
|
(116 |
)% |
|
|
9,633 |
|
|
|
31,148 |
|
|
|
(21,515 |
) |
|
|
(69 |
)% |
Loss on debt extinguishment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
100 |
% |
|
|
21,214 |
|
|
|
— |
|
|
|
21,214 |
|
|
|
100 |
% |
Other expense |
|
|
1,060 |
|
|
|
13 |
|
|
|
1,047 |
|
|
|
8,054 |
% |
|
|
1,075 |
|
|
|
475 |
|
|
|
600 |
|
|
|
126 |
% |
Net loss |
|
$ |
(48,212 |
) |
|
$ |
(55,368 |
) |
|
$ |
(7,156 |
) |
|
|
13 |
% |
|
$ |
(133,819 |
) |
|
$ |
(81,210 |
) |
|
$ |
(52,609 |
) |
|
|
65 |
% |
Operating costs
The increase for the three and six month periods was primarily attributable to higher depreciation expense related to assets supporting operations of $4.3 million and $12.3 million, respectively, due primarily to placing the Ironton Facility assets in service in the second quarter of 2023 and increased operational site costs of $7.3 million and $11.6 million, respectively, related to operating the Ironton Facility.
Research and development expenses
Research and development expenses did not significantly change period over period.
Selling, general and administrative expenses
The increase for the three month period was principally attributable to $4.3 million higher legal and professional consulting fees primarily related to a legal settlement reached in the second quarter of 2024, partially offset by a $1.0 million lower bonus expense due to lower projected attainment against performance metrics. The increase for the six month period was principally attributable to $6.4 million higher legal and professional consulting fees primarily related to a legal settlement and the purchase of the Revenue Bonds, as well as higher insurance cost of $1.6 million, partially offset by $1.2 million lower employee and benefit costs and $0.7 million lower taxes and licenses cost.
40
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Interest expense
The increase for the three and six month periods was attributable to additional financing incurred in the second and third quarters of 2023, including the closing of the $250.0 million of green convertible senior notes in August 2023, as well as ceasing capitalization of interest on the Revenue Bonds beginning in June 2023 as the plant is now in service.
Interest income
Interest income did not change significantly for the six months ended June 30, 2024 compared to 2023. The decrease for the period over prior year was primarily due to liquidation of the Company's available-for-sale investment portfolio earlier in 2024.
Change in fair value of warrants
The decreased expense for the three and six month periods was attributable to the change in fair value of the Company’s liability-classified warrants, of which the primary drivers of the change in valuation related to changes in the underlying price of PCT’s common stock, as well as fluctuations in volatility and reduction in the warrant terms with the passage of time.
Loss on debt extinguishment
The amount reported in the first quarter of 2024 relates to the loss recorded on the purchase of the majority of the outstanding Revenue Bonds.
Other expense
The increased expense for the three and six month period was attributable to the $0.8 million impairment charge related to the operating right-of-use asset in the second quarter of 2024.
Liquidity and Capital Resources
During 2023 and through June 30, 2024, PCT commenced commercial operations and sold an immaterial amount of resin but has not yet reached significant continuous operational volumes. PCT’s ongoing operations have, to date, been funded by a combination of equity financing through the issuance of units and debt financing through the issuance of various debt instruments. The following is a summary of the components of our current liquidity. The Debt Securities Available for Sale represent investment holdings in highly liquid debt securities and commercial paper with an average maturity of less than one year. As of December 31, 2023, Restricted cash consisted primarily of certain amounts required for the Series 2020A Bonds and other initial construction commitments for the Augusta Facility. On March 5, 2024, a subsidiary of the Company purchased 99% of the outstanding Bonds which, among other things, released Restricted Cash to be used to purchase the Bonds. See “Management’s Discussion and
41
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Indebtedness – Revenue Bonds” for more information.
(in millions) |
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Cash and Cash Equivalents |
|
$ |
10.9 |
|
|
$ |
73.4 |
|
Debt Securities Available for Sale |
|
|
— |
|
|
48.2 |
|
|
|
|
|
|
|
|
|
||
Ironton Facility Bond Reserves |
|
$ |
3.6 |
|
|
$ |
210.6 |
|
Augusta Construction Escrow |
|
|
2.6 |
|
|
|
14.4 |
|
Letters of Credit and Other Collateral |
|
|
6.4 |
|
|
|
4.1 |
|
Restricted Cash (current and non-current) |
|
$ |
12.6 |
|
|
$ |
229.1 |
|
|
|
|
|
|
|
|
||
Green Convertible Notes |
|
$ |
224.0 |
|
|
$ |
220.7 |
|
Related Party Revenue Bonds |
|
|
63.8 |
|
|
|
— |
|
Equipment Financing Payable |
|
|
21.9 |
|
|
|
21.6 |
|
Pure Plastic Related Party Note Payable |
|
|
— |
|
|
|
39.7 |
|
Revenue Bonds |
|
|
2.8 |
|
|
|
234.6 |
|
Other Debt |
|
|
1.8 |
|
|
|
— |
|
Add: Discount and Issuance Costs |
|
|
56.0 |
|
|
|
47.6 |
|
Gross Long-term Debt and Related Party Note Payable |
|
$ |
370.3 |
|
|
$ |
564.2 |
|
As of June 30, 2024, PCT had $10.9 million of Cash and cash equivalents and $12.6 million of Restricted cash. PCT also has a $200.0 million revolving credit facility with Sylebra Capital (the “Revolving Credit Facility”) that is currently unused and expires on September 30, 2025.
PCT sold an immaterial amount of resin through the first six months of 2024 but has not yet reached meaningful production volumes and on-spec product. PCT has experienced intermittent mechanical challenges during the commissioning process including, but not limited to, limits in the rates at which certain contaminants can currently be removed from the purification process, as well as challenges with continuous operations of the pelletizing system for finished product. Recently, PCT has been focused on the recovery and removal of polyethylene and other solids (“co-product 2” or “CP2”), which impacts the ability to run higher volumes and produce consistent, high quality UPR resin. PCT believes it has identified multiple potential solutions that are expected to improve the ability to recover and remove CP2, as well as increase operational reliability. While these mechanical issues are not uncommon for first-of-its kind manufacturing facilities, the downtime needed to correct these issues is delaying the Ironton Facility from reaching consistent sustainable production rates. In addition to pursuing solutions for CP2 removal, the Company is also evaluating processes that blend its resin with either post-industrial recycled material or virgin polypropylene, which is expected to improve product consistency and enhance the product delivery to customers.
As of June 30, 2024, and through the twelve months from the date of filing, PCT anticipates additional capital investment in the Ironton Facility of approximately $5.0 to $8.0 million. PCT also has other capital commitments of approximately $46.5 million related to long-lead equipment and pre-construction work for the Augusta Facility and for future Feed PreP and purification facilities, both in the U.S. and internationally. Moreover, there are interest and principal payments of at least $55.0 million, as well as other ongoing monthly costs associated with managing the Company and possible draws on the Revolving Credit Facility.
Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the consolidated financial statements included in this Quarterly Report on Form 10-Q are issued. This evaluation does
42
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.
PCT believes that its current level of unrestricted liquidity is not sufficient to fund operations, outstanding commitments, and further its future growth plans. The conditions described above raise substantial doubt regarding PCT’s ability to continue as a going concern for a period of at least one year from the date of issuance of the consolidated financial statements included in this Quarterly Report on Form 10-Q.
In an effort to alleviate these conditions, PCT is currently performing certain operational enhancements that are expected to correct the production issues with the Ironton Facility. Further, on March 5, 2024, PureCycle Technologies LLC ("PCT LLC") purchased 99% of the outstanding Bonds (as defined below). On May 7, 2024, PCT LLC executed a bond purchase agreement whereby Pure Plastic ("Pure Plastic"), a Delaware limited liability company, purchased approximately $94.3 million in aggregate par amount of Bonds owned by PCT LLC. See Revenue Bonds Issued to Related Party for further information. The remaining purchased Bonds are held in an account with PCT LLC. PCT intends to, and has the ability to, re-market some or all of these remaining Bonds based on the need for additional liquidity. The re-marketing process may require the addition of certain covenants to enhance the marketability of the purchased Bonds. The ability to re-market the purchased Bonds with any such additional new covenants would require a further amendment to, or waiver of, provisions included within the Revolving Credit Facility. After considering management’s plans to mitigate these conditions, including operational progress and re-marketing of the Bonds, PCT believes this substantial doubt has been alleviated and it has sufficient liquidity to continue as a going concern for the next twelve months.
PCT’s future capital requirements will depend on many factors, including the funding mechanism and construction schedule of the Augusta Facility and other anticipated facilities outside the United States, build-out of multiple Feed PreP facilities, funding needs to support other business opportunities, funding for general corporate purposes, and other challenges or unforeseen circumstances. As a low-revenue operating company, PCT continually reviews its cash outlays, pace of hiring, professional services and other spend, and capital commitments to proactively manage those needs in tandem with our available unrestricted cash balance. For future growth and investment, PCT expects to seek additional debt or equity financing from outside sources, which it may not be able to raise on terms favorable to PCT, or at all. If PCT is unable to raise additional debt or sell additional equity when desired, or if PCT is unable to manage its cash outflows, PCT’s business, financial condition, and results of operations would be adversely affected. In addition, any financing arrangement may have potentially adverse effects on PCT and/or its stockholders. Debt financing (if available and undertaken) will increase expenses, must be repaid regardless of operating results and may involve restrictions limiting PCT’s operating flexibility. If PCT consummates an equity financing to raise additional funds, the percentage ownership of its existing stockholders will be reduced, and the new equity securities may have rights, preferences or privileges senior to those of the current holders of PCT’s common stock.
PCT has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. PCT does not have any off-balance sheet arrangements or interests in variable interest entities that would require consolidation. Note that while certain legally
43
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
binding offtake arrangements have been entered into with customers, these arrangements are not unconditional and definite agreements subject only to customer closing conditions, and do not qualify as off-balance sheet arrangements required for disclosure.
Cash Flows
A summary of our cash flows for the periods indicated is as follows:
|
|
Six Months Ended June 30, |
|
|||||||||||||
|
|
|
|
|
|
|
|
$ |
|
|
% |
|
||||
(in thousands, except %) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|
Change |
|
||||
Net cash used in operating activities |
|
$ |
(79,608 |
) |
|
$ |
(40,424 |
) |
|
$ |
(39,184 |
) |
|
|
97 |
% |
Net cash provided by investing activities |
|
|
23,857 |
|
|
|
(24,868 |
) |
|
|
48,725 |
|
|
|
(196 |
)% |
Net cash used in financing activities |
|
|
(223,308 |
) |
|
|
54,097 |
|
|
|
(277,405 |
) |
|
|
(513 |
)% |
Cash and cash equivalents, beginning of period |
|
|
302,514 |
|
|
|
227,523 |
|
|
|
74,991 |
|
|
|
33 |
% |
Cash and cash equivalents, end of period |
|
$ |
23,455 |
|
|
$ |
216,328 |
|
|
$ |
(192,873 |
) |
|
|
(89 |
)% |
Cash Flows from Operating Activities
The $39.2 million increase in net cash used in operating activities for the six months ending June 30, 2024 compared to the same period in 2023 was primarily attributable to higher interest payments on debt of $21.0 million (including $8.6 million paid for the green convertible notes and $5.9 million in outstanding interest paid in connection with the purchase of the Revenue Bonds in March 2024), an increase in cash payments related to operating expenses of $18.6 million primarily driven by an increased operational site costs at the Ironton Facility as well as higher legal and professional consulting fees million primarily related to the payout of a legal settlement in the second quarter of 2024.
Cash Flows from Investing Activities
The $48.7 million increase in cash provided by investing activities for the six months ending June 30, 2024 compared to the same period in 2023 was attributable to $99.5 million lower capital expenditure payments, offset by $30.6 million higher investment purchases and $20.4 million lower maturities and sales of investments.
Cash Flows from Financing Activities
The $277.4 million increase in net cash used in financing activities for the six months ending June 30, 2024 compared to the same period in 2023 was primarily attributable to $253.2 million paid to purchase the outstanding Revenue Bonds and a decrease of $23.5 million in proceeds from debt.
Indebtedness
There have been no material changes regarding the Company's indebtedness from the information we provided in our most recent Annual Report on Form 10-K, except as outlined in the information below. Refer to Note 3 (“Notes Payable and Debt Instruments”) to the Notes to the Interim Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q for additional information regarding the Company's outstanding indebtedness.
Revenue Bonds
On October 7, 2020, the Southern Ohio Port Authority (“SOPA”) issued certain Revenue Bonds (as defined below) pursuant to an Indenture of Trust dated as of October 1, 2020 (as amended, restated, supplemented or otherwise modified from time to time, the “Indenture”), between SOPA and UMB Bank, N.A., as Trustee (“Trustee”), and
44
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
loaned the proceeds from their sale to PureCycle: Ohio LLC (“PCO”), an Ohio limited liability company and indirect wholly-owned subsidiary of PCT, pursuant to a Loan Agreement dated as of October 1, 2020, between SOPA and PCO (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”) to be used to, among other things, acquire, construct and equip the Company’s first commercial-scale recycling facility in Lawrence County, Ohio (the “Ironton Facility”). Capitalized terms used but not defined herein have the meanings ascribed thereto in the Indenture.
The Revenue Bonds were offered in three series, including (i) Exempt Facility Revenue Bonds (PureCycle Project), Tax-Exempt Series 2020A (“Series 2020A Bonds”); (ii) Subordinate Exempt Facility Revenue Bonds (PureCycle Project), Tax-Exempt Series 2020B (“Series 2020B Bonds”); and (iii) Subordinated Exempt Facility Revenue Bonds (PureCycle Project), Taxable Series 2020C (“Series 2020C Bonds” and, together with the Series 2020A Bonds and the Series 2020B Bonds, the “Bonds” or "Revenue Bonds").
All of the Bonds are Outstanding under the Indenture. PureCycle Technologies LLC, a Delaware limited liability company (the “Guarantor”), purchased $246.8 million in aggregate principal amount of Bonds Outstanding under the Indenture on March 5, 2024, of which $216.8 million in aggregate principal amount were Series 2020A Bonds, such that the Guarantor comprised the Majority Holders. The Purchase was determined to be an extinguishment of the underlying debt obligation due to PCO being a wholly-owned subsidiary of the Guarantor. PCT intends to, and has the ability to, re-market some or all of these Bonds based on the need for additional liquidity. The re-marketing process may require the addition of certain covenants to enhance the marketability of the purchased Bonds.
Revenue Bonds Issued to Related Party
On May 7, 2024, PCT LLC and Pure Plastic executed a bond purchase agreement (as subsequently amended and restated to reflect the appropriate denomination of bonds, the “Amended and Restated Bond Purchase Agreement”), whereby Pure Plastic purchased approximately $94.3 million in aggregate par amount of Bonds owned by PCT LLC (the “Related Party Bonds”), including (i) a portion of the Series 2020A Bonds, (ii) all of the Series 2020B Bonds, and (iii) all of the Series 2020C Bonds, at a purchase price of $800 per $1,000 principal amount of the Related Party Bonds. Affiliates of Pure Plastic are greater than 5% beneficial owners of the Company.
On May 10, 2024, Pure Plastic executed a Payoff and Release Letter (the “Payoff and Release Letter”), which memorialized the exchange of the Company’s obligations under the $40 million term loan provided to the Company pursuant to the Term Loan Credit Agreement (as defined below). The Company was also required to pay a 12% prepayment premium on the outstanding principal and interest paid in order to prepay the Term Loan Facility (the “Prepayment Premium”), plus certain expenses. The Company issued warrants (“Series B Warrants”) to Pure Plastic pursuant to the Series B Warrant Agreement to satisfy the Prepayment Premium (the “Series B Warrant Agreement”). Refer to Note 5 – Warrants for further discussion.
On May 28, 2024, PCT LLC and Pure Plastic executed the First Amendment to Amended and Restated Bond Purchase Agreement (“First Amendment”) whereby Exhibit A to the Amended and Restated Bond Purchase Agreement was replaced with Exhibit A-3 to the First Amendment to facilitate the transfer by the Depository Trust Company of certain of the Related Party Bonds. The total amount of the Related Party Bonds and the cash due from Pure Plastic to PCT LLC remains the same. Except as summarized above and as set forth in the First Amendment, PCT LLC and Pure Plastic each acknowledged and reaffirmed the terms of the Amended and Restated Bond Purchase Agreement in the First Amendment.
On June 14, 2024, SOPA, as Issuer, PCO, the Guarantor, PCTO Holdco LLC, a Delaware limited liability company and affiliate of PCO (the pledgor under the Equity Pledge and Security Agreement (as defined in the Fifth Supplemental Indenture) and the Trustee entered into the Fifth Supplemental Indenture (the “Fifth Supplemental
45
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Indenture”) which amended certain provisions of the Indenture including (a) redefining “Majority Holders” to be the Holders of seventy-five percent (75%) in aggregate principal amount of the Senior Bonds then Outstanding, or if no Senior Bonds are then Outstanding, the Holders of seventy-five percent (75%) in aggregate principal amount of Bonds then Outstanding, and (b) amending the lead paragraph of Section 10.02(a) of the Indenture by raising the threshold for consenting to and approving the execution by the Issuer and the Trustee of Supplemental Indentures from “Holders of not less than a majority in aggregate principal amount of the Outstanding Senior Bonds” to “Holders of not less than 75% in aggregate principal amount of the Outstanding Senior Bonds” with the limited exceptions therein stated.
See Part II, Item 5 of this Quarterly Report on Form 10-Q for additional information regarding the Related Party Bonds from the period covered by this Quarterly Report on Form 10-Q to the filing of this Quarterly Report on Form 10-Q.
Sylebra Credit Facility
On March 15, 2023, PCT entered into the $150.0 million Revolving Credit Facility pursuant to a Credit Agreement (as amended, the “Revolving Credit Agreement”) dated as of March 15, 2023, with PureCycle Technologies Holdings Corp. and PCT LLC (the “Guarantors”), Sylebra Capital Partners Master Fund, LTD, Sylebra Capital Parc Master Fund, and Sylebra Capital Menlo Master Fund (collectively, the “Lenders”), and Madison Pacific Trust Limited (the “Administrative Agent” and “Security Agent”). The Lenders and their affiliates are greater than 5% beneficial owners of PCT.
On March 1, 2024, PCT increased the Revolving Credit Facility from $150.0 million to $200.0 million, extended the maturity date to September 30, 2025, and obtained a carveout to permit the Company to purchase the Revenue Bonds, pursuant to an amendment to the Revolving Credit Agreement.
In conjunction with PCT LLC’s sale of approximately $94.3 million of Related Party Bonds, on May 10, 2024, the Company, the Guarantors, the Administrative Agent, the Security Agent and the Lenders executed a Limited Consent and Fifth Amendment to the Credit Agreement (“Limited Consent and Fifth Amendment to Credit Agreement”) to permit the Disposition of Bonds (as defined therein), as well as to provide certain administrative revisions to eliminate the Intercreditor Agreement (as defined therein) and references to the Term Loan Credit Agreement.
The Pure Plastic Term Loan Facility
On May 8, 2023, the Company entered into a $40.0 million term loan facility pursuant to the Term Loan Credit Agreement ("Term Loan Credit Agreement") dated as of May 8, 2023, among the Guarantors and Pure Plastic LLC (as Lender, Administrative Agent, and Security Agent), which matures on December 31, 2025 (the “Term Loan Facility”). The Term Loan Credit Agreement was amended on August 21, 2023. Affiliates of the Lender are greater than 5% beneficial owners of the Company.
On March 1, 2024, PCT increased the amount available to the Company under the Term Loan Credit Agreement's permitted indebtedness covenant basket for the Revolving Credit Facility from $150.0 million to $200.0 million and obtained a carve out to permit the Company to purchase the Revenue Bonds. Each of PureCycle Technologies Holdings Corp. and PCT LLC are subsidiaries of the Company.
On May 10, 2024, Pure Plastic executed the Payoff and Release Letter, which memorialized the exchange of the Company’s obligations under the Term Loan Credit Agreement. Refer to "Revenue Bonds Issued to Related Party" section above for further discussion.
46
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Financial Assurance
On March 14, 2024, PCT renewed a surety bond in the amount of $25.0 million to provide financial assurance related to its performance under a certain vendor contract, which expires at the earlier of satisfaction of the obligation, termination of the related vendor contract, or one year from issuance (subject to renewal within one year). Effective July 1, 2024, the amount was increased from $25.0 million to $45.9 million.
These financial instruments are issued in the normal course of business and are not considered company indebtedness. Because PCT currently has no liability for these financial assurance instruments, they are not reflected in its consolidated balance sheets.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies and estimates from the information we provided in our most recent Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 2 to the unaudited condensed consolidated interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations.
47
PureCycle Technologies, Inc.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks as of June 30, 2024 does not differ materially from that included in our most recent Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
PCT’s management, with the participation of its principal executive and financial officers, has evaluated the effectiveness of its disclosure controls and procedures in ensuring that the information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, including ensuring that such information is accumulated and communicated to management (including the principal executive and financial officers) as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, PCT’s principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of June 30, 2024 (the end of the period covered by this Quarterly Report on Form 10-Q).
Changes in Internal Control over Financial Reporting
There have been no changes during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, PCT’s internal control over financial reporting.
48
PureCycle Technologies, Inc.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of the legal proceedings pending against us, see “Legal Proceedings” in Note 11 (“Commitments and Contingencies”) to the Notes to the Interim Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10‑Q.
In the future, PCT may become party to additional legal matters and claims arising in the ordinary course of business. While PCT is unable to predict the outcome of the above or future matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial position, results of operations, or cash flows.
ITEM 1A. RISK FACTORS
There have been no material changes from risk factors previously disclosed in our most recent Annual Report on Form 10-K in response to Part 1, Item 1A.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information with respect to the Company’s purchases of its common stock for the second quarter of 2024:
Period |
|
(a) Total number of shares (or units) purchased* |
|
|
(b) Average price paid per share (or unit)* |
|
|
(c) Total number |
|
|
(d) Maximum |
|
||||
April 1 to April 30 |
|
|
1,284 |
|
|
$ |
5.73 |
|
|
|
— |
|
|
$ |
— |
|
May 1 to May 31 |
|
|
11,746 |
|
|
|
5.22 |
|
|
|
— |
|
|
|
— |
|
June 1 to June 30 |
|
|
727 |
|
|
5.24 |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
|
13,757 |
|
|
$ |
5.27 |
|
|
|
— |
|
|
$ |
— |
|
* Shares withheld to cover tax withholding obligations under the net settlement provision upon vesting of restricted stock units
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
49
PureCycle Technologies, Inc.
PART II — OTHER INFORMATION — CONTINUED
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
None of the Company’s directors or officers
Other Events
On August 7, 2024, PCT LLC, Pure Plastic, and several other parties reached agreement on terms whereby certain purchasers would purchase approximately $22.5 million in aggregate par amount of Series A Bonds owned by PCT LLC at a purchase price of $800 per $1,000 principal amount (the “August Purchased Bonds”) under a Bond Purchase Agreement. The purchase of the August Purchased Bonds is expected to be completed and funds received by PCT LLC on or about August 9, 2024.
The foregoing description of the Bond Purchase Agreement is not complete and is qualified in its entirety by reference to the full text of the “form of” Bond Purchase Agreement, which is attached hereto as Exhibit 10.7 and incorporated herein by reference.
50
PureCycle Technologies, Inc.
PART II — OTHER INFORMATION — CONTINUED
ITEM 6. EXHIBITS
Exhibit Number |
|
Description of Exhibit |
2.1 |
|
|
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
3.3 |
|
|
|
|
|
3.4 |
|
|
|
|
|
4.1 |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2 |
|
|
|
|
|
10.3 |
|
|
|
|
|
10.4 |
|
|
|
|
|
10.5 |
|
|
|
|
|
10.6 |
|
|
|
|
|
51
PureCycle Technologies, Inc.
PART II — OTHER INFORMATION — CONTINUED
10.7 |
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101.1 |
|
The following financial statements from PureCycle Technologies, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024, formatted in Inline XBRL (eXtensible Business Reporting Language): |
|
|
(i) Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023. |
|
|
(ii) Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2024 and 2023. |
|
|
(iii) Unaudited Condensed Consolidated Statements of Stockholders Equity for the Three and Six Months Ended June 30, 2024 and 2023. |
|
|
(iv) Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023. |
|
|
(v) Notes to the Interim Condensed Consolidated Financial Statements. |
|
|
|
104.1 |
|
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
† Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish copies of any of the omitted schedules upon request by the Securities and Exchange Commission.
52
PureCycle Technologies, Inc.
PART II — OTHER INFORMATION — CONTINUED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PURECYCLE TECHNOLOGIES INC. |
||
(Registrant) |
||
By: |
|
/s/ Dustin Olson |
Dustin Olson |
||
Chief Executive Officer |
||
(Principal Executive Officer) |
||
By: |
|
/s/ Jaime Vasquez |
Jaime Vasquez |
||
Chief Financial Officer |
||
(Principal Financial Officer) |
||
|
||
Date: August 8, 2024 |
||
53
Exhibit 10.7
BOND PURCHASE AGREEMENT
This BOND PURCHASE AGREEMENT (this “Agreement”) is entered into as of August 6, 2024, by and between PureCycle Technologies LLC, a Delaware limited liability company, qualified to do business in the State of Ohio (the “Seller” or the “Guarantor”) and the other signatory hereto (the “Purchaser”, and together with the Seller, the “parties”). Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Indenture (as defined herein).
WHEREAS, Southern Ohio Port Authority, a port authority and a body corporate and politic duly organized under the laws of the State of Ohio (the “Issuer”) and UMB Bank, N.A., as trustee (the “Trustee”), are party to that certain Indenture of Trust, dated as of October 1, 2020 (as amended, restated, supplemented or otherwise modified from time to time, the “Indenture”), pursuant to which the Issuer has issued its $219,550,000 Southern Ohio Port Authority Exempt Facility Revenue Bonds (PureCycle Project), Tax-Exempt Series 2020A (the “Series 2020A Bonds”), $20,000,000 Southern Ohio Port Authority Subordinate Exempt Facility Revenue Bonds (PureCycle Project), Tax-Exempt Series 2020B (the “Series 2020B Bonds”), and $10,000,000 Southern Ohio Port Authority Subordinate Exempt Facility Revenue Bonds (PureCycle Project), Taxable Series 2020C (the “Series 2020C Bonds” and collectively with the Series 2020A Bonds and the Series 2020C Bonds, the “Bonds”);
WHEREAS, the Series 2020A Bonds mature December 1 in the years 2025, 2030 and 2042, including $168,480,000 of Series 2020A Bonds maturing December 1, 2042 (the “Series 2020A (A3) Bonds”), which bear interest at the rate of 7.00% per annum;
WHEREAS, all of the Bonds are Outstanding;
WHEREAS, the Issuer and PureCycle: Ohio LLC, an Ohio limited liability company (the “Company”) are party to that certain Loan Agreement, dated as of October 1, 2020 (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”), pursuant to which the proceeds derived from the issuance and sale of the Bonds have been loaned to the Company in order to assist the Company in, among other things, financing the acquisition, construction, equipping and installation of a portion of a plastics recycling facility located in Lawrence County, Ohio;
WHEREAS, the Seller is party to that certain Amended and Restated Guaranty of Completion, entered into as of May 11, 2021, and effective as of October 7, 2020 (as amended, restated, supplemented or otherwise modified from time to time, the “Guaranty”), pursuant to which the Seller, in its capacity as Guarantor, has provided a guaranty with respect to Obligations of the Company under the Loan Agreement on the terms set forth in the Guaranty in favor of the Trustee;
WHEREAS, as of this date, the Seller is the Holder of $140,070,000 in aggregate principal amount of Series 2020A (A3) Bonds Outstanding;
WHEREAS, the Seller is willing to sell those Series 2020A (A3) Bonds set forth on Exhibit A to this Agreement (the “Purchased Bonds”), to the Purchaser listed on said Exhibit A at a purchase price of $800 per $1,000 principal amount of Purchased Bonds (the “Purchase Price”) upon the terms and conditions set forth in this Agreement, and the Purchaser is willing to purchase from Seller for cash those Series 2020A (A3) Bonds at the Purchase Price, all as indicated on said Exhibit A upon the terms and conditions set forth in this Agreement;
WHEREAS, Seller represents that it is the current owner and Holder of the Purchased Bonds;
WHEREAS, the Purchaser agrees that the Purchased Bonds being purchased by the Purchaser and the Purchase Price therefor as indicated on Exhibit A are true and accurate; and
WHEREAS, the Purchaser represents that its signatory to this Agreement is duly authorized to enter into this Agreement on behalf of the Purchaser;
NOW, THEREFORE, in consideration of the premises and the mutual agreements contained in this Agreement, and for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by the parties, the parties hereto agree as follows:
2
3
[Remainder of Page Intentionally Left Blank]
4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
SELLER:
PureCycle Technologies LLC
By:
Name:
Title:
PURCHASER:
[ ]
By:
Name:
Title:
[Signature Page to Bond Purchase Agreement]
Exhibit A
Purchased Bonds
Purchaser |
Purchased Bonds |
CUSIP |
Purchase Price |
|
|
|
|
A-1
Exhibit B
Investor Letter
B-1
FORM OF INVESTOR LETTER
August __, 2024
PureCycle Technologies LLC
4651 Salisbury Road
STE 400
Jacksonville, FL 32256
Orlando, Florida 32822
Locke Lord LLP
7850 Five Mile Road
Cincinnati, OH 45230
Re: $10,000,000 Southern Ohio Port Authority Exempt Facility Revenue Bonds (PureCycle Project), Tax-Exempt Series 2020A, maturing December 1, 2042 (the “Bonds”)
Ladies and Gentlemen:
The undersigned, being the purchaser (the “Purchaser”) of the above-referenced Bonds from PureCycle Technologies LLC (the “Seller”) on this date, hereby represents and acknowledges to you as follows:
necessary to enable the Purchaser to make an informed investment decision with respect to the purchase of the Bonds.
B-2
[ ]
By:
Name:
Title:
B-3
Exhibit C
Wire Instructions for Seller’s Account
C-1
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Dustin Olson, certify that:
Date: |
|
August 8, 2024 |
By: |
|
/s/ Dustin Olson |
Dustin Olson |
||
Chief Executive Officer |
||
(Principal Executive Officer) |
||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Jaime Vasquez, certify that:
Date: |
|
August 8, 2024 |
By: |
|
/s/ Jaime Vasquez |
Jaime Vasquez |
||
Chief Financial Officer |
||
(Principal Financial Officer) |
||
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of PureCycle Technologies, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2024 (the “Report”), Dustin Olson, Chief Executive Officer of the Company, certifies, to the best of his knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
Date: |
August 8, 2024 |
By: |
/s/ Dustin Olson |
Dustin Olson |
|
Chief Executive Officer (Principal Executive Officer) |
|
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of PureCycle Technologies, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2024 (the “Report”), Jaime Vasquez, Chief Financial Officer of the Company, certifies, to the best of his knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
Date: August 8, 2024
By: |
/s/ Jaime Vasquez |
Jaime Vasquez |
|
Chief Financial Officer |
|
(Principal Financial Officer) |
|